The Law Commission has released its recommendations for the review of trust law, which, if taken on board, could clarify and simplify procedures, make administration more straightforward and reduce the need to go to court.
There are up to 500,000 trusts in New Zealand involving thousands of people, including many farming families.
The Law Commission stated if a settler (owner) put property or other assets into a trust, they no longer owned those assets, which were now legally owned by the trustees, who had to administer the trust for the benefit of beneficiaries.
Preston Russell Law lawyer Gareth Davis, of Invercargill, said from his understanding of the summary of recommendations from the Law Commission, he thought the proposed changes would clarify trust rules and what could and could not be done, as well as clarifying the legal duties, expectations and rights of trust managers, trustees and beneficiaries.
''From what I have read, it is a comprehensive review.''
There was no difference between trusts that held urban-based assets and those that held rural-based ones, such as family farms, Mr Davis said.
''It has been about 60 years since they last did anything and a lot has changed.''
One proposal would change the life of a trust from 80 to 150 years, he said.
''From a succession planning point of view, that makes it easier to disperse the assets so it [the trust] can be wound up.''
The recommendations would give the courts ''more teeth'' to deal with issues such as one person using a trust to hide assets from a third party, such as a spouse, or establishing a trust but continuing to treat the assets as if that person still owned them, Mr Davis said.
In its summary, the Law Commission said ''in some cases the new Act would make it clear that the court had the power to find that a trust had not been established''.
In the event of a marriage break-up or creditor claims in an insolvency situation, other Acts, such as the Property (Relationships) Act 1976 and the Family Proceeding Acts, would come into play, it said.
However, it recommended the courts be allowed to remove assets from a trust that would have ordinarily been relationship property, to compensate a disadvantaged partner.
Law Commissioner Geoff McLay said some of the recommended changes included giving a judge a ''more tailored and focused tool'' in response to ''particular kinds of injustices'', and could include taking property out of a trust to ''satisfy compensation'' for a disadvantaged partner.
The Government had six months to consider if it would turn the recommendations into a Bill and if it would allow public consultation, he said.
There would be ''numerous opportunities for consultations'' during the Bill's progress.
Federated Farmers president Bruce Wills is cautiously greeting the Law Commission's trust law recommendations.
''Trust law maybe highly complicated, but it is common within agriculture as part of farm succession planning,'' he said.
''With upwards of one trust for every eight New Zealanders, if the Law Commission's recommendations ultimately deliver certainty, then that will be a good thing.
''When we say `certainty', it means that when people need to rely upon a trust it stands up to scrutiny.
''Farmers can rest assured that Federated Farmers will be seeking expert input on any legislative proposals that may emerge in response to the Law Commission's recommendations.''
Review of trusts
The Law Commission's recommendations include:
- clarifying the list of documents that must be retained
- clarifying trustees' general obligations, duties and trust establishment requirements
- every trustee, except those whose trust deeds specify a different approach, would have all the powers in relation to the trust property that a person had if they owned the property
- flexible powers to invest trust property to maximise returns and delegate authority for investment decisions
- provide and clarify procedures for dealing with a trustee's incapacity or death
- any new law should not invalidate existing trusts which meet the requirements
- giving the courts a wider ability to set aside asset transfers to resolve relationship property disputes
- Yvonne O'Hara